In re Kanika Exim (GST AAR Gujarat)
The case of In re Kanika Exim (GST AAR Gujarat) addresses the Goods and Services Tax (GST) rate applicable to job work services involving the cutting of metallic film rolls. Kanika Exim, a firm engaged in this specific job work, receives metallic film rolls from clients, cuts them to specified dimensions, winds them onto bobbins, and returns them. These processed rolls are subsequently used in the production of zari/metallic yarn, which is then utilized in manufacturing sarees. The core of the applicant’s inquiry revolved around whether their service would attract GST at 5%, 12%, or 18%. The applicant contended that a 5% rate might apply if the service was deemed directly related to garment or fabric manufacturing, given the end-use of the metallic film rolls in saree production. Alternatively, they considered a 12% rate for textile processing job work or an 18% rate for general job work.
The Authority for Advance Ruling (AAR) in Gujarat examined the relevant GST notifications, specifically Serial No. 26 of Notification No. 11/2017-CT (Rate) dated June 28, 2017, and clarifications issued by the CBIC. The AAR first determined that the 18% GST rate under Serial No. 26(iv) was not applicable since Kanika Exim’s clients are registered under GST. The crucial point of contention was whether the service qualified for the 5% rate under Serial No. 26(i)(b), which applies to job work “in relation to Textiles & textile products falling under chapters 50 to 63 in the first Schedule to the Customs Tariff Act, 1975.” The AAR noted that while the phrase “in relation to” has a wide scope, its application depends on the context. Despite the metallic film rolls’ eventual use in textile products, Kanika Exim failed to provide evidence, such as HSN/SAC codes on their invoices or delivery challans, to establish that the metallic film rolls themselves, as supplied by their principal, were textile or textile products falling under Chapters 50 to 63 of the Customs Tariff Act, 1975. Consequently, the AAR ruled that the job work of cutting metallic film rolls does not qualify for the 5% GST rate. Instead, it falls under Serial No. 26(id) of the notification, attracting a GST rate of 12%. This ruling was consistent with the 12% GST already being charged by Kanika Exim on their invoices for job work charges.
